Average costing and pricing regulation method
The average costing and pricing regulation method is a method of calculating taxi operation costs, used in the days when the principle of the same area, same fare applied. Under the principle, taxi fares were modified by each fare block. To determine whether the applicable fare block required a fare adjustment, the authorities selected standard cost efficiency companies, based on such criteria such as size, years of operation, and the existence of labor disputes. The fare block was allowed to adjust fares if the weighted average, including the reasonable profit margin, of the selected companies income / expense ratio, based on current taxi fare, was 100 or under, or the estimated weighted average for the following year was 100 or under. When the need for fare adjustment is acknowledged, the authorities then select cost accounting companies from among the standard cost efficiency companies. In principle, the standard cost efficiency companies are categorized according to fleet size, and 50% of companies, minimum 10 companies, maximum 30 companies, are selected for cost accounting from each category. In the average costing and pricing regulation method, the average cost among cost accounting companies is deemed the cost of the overall fare block. New fares are set such that the rate of revenue increase is equal to the required rate of revenue increase according to cost accounting. This system has the advantage of creating an incentive to companies with above-average costs to cut expenses, while rewarding low-cost companies with a surplus margin. It works, in effect, as a simple type of yardstick regulation. On the other hand, the disadvantage of the system was the resulting uniform fares. The system is based on the same area, same fare principle. However, as part of the recent diversification of taxi fares, especially the introduction of the fare band system, the concept of average cost has been incorporated to set the fare ceiling, thus using it for fare diversification as well as the incentive to improve business efficiency.